Markets continue to acquit themselves quite well in 2023. The Nasdaq has already reclaimed one third of its sharp loss in 2022 as we near the close of January. Equities seem content to continue to climb the proverbial wall of worry so far in 2023.
The war in Ukraine is in a significant escalation phase with the West now committed to sending front line battle tanks to the area of conflict. Modern jet fighters like the F-16 are probably not far behind. Investors are shrugging this all off at this point, but the conflict is something I am still keeping a close eye on.
Fourth quarter earnings season has been a hit and miss affair to this point with Intel's (INTC) dismal report after the bell yesterday another sign how challenged many industries are in the economy. Dow Inc. (DOW) became one of the latest of a myriad of notable names to announce layoffs after its own disappointing results on Thursday.
Investors did see a slightly better than expected fourth quarter GDP report hit before the bell yesterday showing the economy grew 2.9% in the final stanza of 2022. However, inventory builds, and other factors are pointing to a likely negative GDP print in the first quarter of 2023.
While I remain cautious on the overall market, I continue to make small bets and act upon the limited opportunities I am finding in the current market. I am using covered call orders to initiate positions to add downside mitigation as I deploy some of the substantial 'dry powder' in my portfolio. Today, we will quickly discuss two trade ideas I have executed this week.
Wednesday, I added a good dollop of Extreme Networks (EXTR) to my existing holdings in this name. Extreme was a good example of the occasional mispricing opportunity that come onto my radar from time to time, that one has to act quickly around.
This small tech name reported fourth quarter earnings Wednesday that easily beat expectations and the company also boosted guidance, a rarity this earnings season. Yet somehow the stock was down just over 20% at one point in trading Wednesday. The news that triggered that decline was the unexpected announcement that the company's CFO is leaving.
The move in the stock on that disclosure seemed more than extreme (pun intended) to me. The CFO is staying on for a bit to help with the transition and it looks like he just found a better opportunity at a privately held software company. The shares have already recovered half their losses from this temporary mispricing.
I also took a new position in EOG Resources (EOG) , a large oil & natural gas producer based in Houston. The stock is off some 10% from recent highs. I wanted some additional exposure to the energy sector as China is finally fully reopening after three years of Covid lockdown madness and there is no end in sight to the situation in Ukraine.
An insider bought some $2.6 million of stock in the firm two weeks ago and shares appear more than reasonably valued at approximately nine times earnings. Management at EOG is committed to returning at least 60% of its free cash flow, typically via regular and special dividends. This should translate to around a 7% dividend yield in 2023 at current trading levels.
